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American steelmakers are faced with an unexpected problem associated with the coronavirus

North America / Analytics
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against the background of falling demand for steel and, consequently, steel prices in the United States sharply increased the prices of raw materials.

American steelmakers are faced with an unexpected problem associated with the coronavirus

the Fall in steel demand in the U.S. mainly due to a break in production vehicles because of the limitations of the spread of coronavirus. In addition, the suspension of the biggest construction and infrastructure projects, and oil prices fell below investment grade. This all puts pressure on the price of steel products, and producers are forced to cut production and to offer discounts to real customers.

But there is another problem for steel producers, which while nobody notices: rising prices for raw materials.

the paradox of the present situation lies in the fact that the offer of scrap metal in the US fell much more than demand and the market there is a shortage. Scrap prices increased by 13% YTD and by almost 40% compared to the lows of March.

Steel is the most recyclable material on earth. In most cases she returns back to the furnace as scrap and turned into new products. Scrap is the main raw material for such American companies like Nucor, whose business model was originally built on the scrap. But traditional producers of steel from ore, such as United States Steel (US Steel< / span>), also began purchasing scrap metal in the framework of the General strategy of search of raw materials.

the Recent rise in scrap prices was doubly strange, because the scrap is usually much cheaper in the middle of the year. This is due to the fact that the waste comes from landfills and dumps in the winter can literally freeze. Moreover, in the winter, construction slows down, producing less scrap for recycling.

Less offer means higher prices, ceteris paribus. The US economy, however, now experiencing a kind of winter, even though summer temperatures.

"There are temporary failures when Parking don't work, the main scrap is really not available," says Nucor CFO James Frias.

However, such "temporary" problem in the United States, which are the largest supplier of scrap in the international market may affect the global economy. According to various sources, the US accounts for about 20% of world exports of scrap.

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